Ayna on Industrials: State of the Union, Looking Back at 2022

A Tough Year for Industrials

Industrials companies overall struggled in 2022. Their total shareholder returns (TSRs) were below average, falling 25 percent, relative to an average TSR change of −22 percent for public markets in the United States and Canada (Exhibit 1). In addition, fewer companies in the sector beat consensus estimates in 2022. For example, the share of companies beating consensus forecasts for revenue fell from 58% in in 2020 to 55% in 2021 and 48% in 2022, and the share exceeding consensus estimates for FCF per share fell from 43% to 30% to just 22% over the same three-year period. Meanwhile, in both 2021 and 2022, 39% of companies exceeded expectations for return on equity—the only measure not showing a decline in the share of companies exceeding consensus forecasts. 

Exhibit 1

Further, their operational performance declined. Revenue growth was 13 percent in 2022, down from 22 percent in the prior year, and EBITDA margins shrank by 159 basis points, compared with expanding 251 points in 2021.

Some Companies Beat the Odds

Not everyone suffered the same fate. We divided the total sample into 57 micro-verticals and de-averaged the results to identify performance variations. The best-performing 23 percent of micro-verticals generated positive shareholder returns (Exhibit 2). Overall, the gap between the top and bottom performers was about 14,000 basis points.

Exhibit 2

Performance varied across companies, too. When we arranged individual companies into quartiles based on TSR, we measured a gap of 7,000 basis points between top- and bottom-quartile performers. Top-performing companies increased EBITDA margin by 19 points (versus a decrease of 286 points for bottom performers) and reduced the ratio of net debt to EBITDA by 0.2 (versus an increase of 0.2 for bottom performers).

The Ayna Awards for Industrials Excellence in 2022

Ayna.AI analyzed company, micro-vertical, and sector performance to identify specific companies that excelled in shareholder returns, operational performance, and multiples improvement in 2022. We are pleased to recognize these excellent industrial companies with Ayna Awards (see Table 1):

• Salmon Award for 29 companies that swam upstream defied the micro-vertical odds to deliver top-tier shareholder returns, roughly 13,000 basis points above bottom performers in top-quartile micro-verticals
• Raptor Award for four companies that soared high by improving their multiples by more than 1.5 times even as the industrial sector’s multiples declined by 30 percent overall
• Hard Hat Award for 31 companies demonstrating operational excellence: top-quartile performance across revenue growth (about 4,800 basis points above the sector average), EBITDA margin expansion (about 890 basis points above the sector average), and FCF margin expansion (approximately 810 points above the sector average)
• Ascensionist Award for 14 companies that rose above expectations by beating consensus estimates on revenue, EBITDA margin, EBITDA per share, FCF per share, and ROE—resulting in delivery of total shareholder returns about 960 points higher than for the sector overall‍
• Accumulator Award for four companies—Albemarle, Enphase, Graphic Packaging, and Visteon—that each met the criteria for two of the other awards in 2022

Table 1

While 2022 was a tough year for public markets, especially the industrial sector, there were winners and losers. Top-quartile companies on shareholder returns focused on revenue growth, EBITDA margin, and FCF margin. Ayna Awards exhibit how multiple companies were able to beat the overall industrial sector and micro-vertical performance on returns, valuations, operational performance, and more.

In the report, we also take a deeper dive into the analysis of individual companies (in the final chapter’s “case studies”) which gives further insight into the kinds of activities that enabled companies to soar above peers’ performance and analysts’ expectations.